International Finance

Overview

Over the next 40 years, land, energy, water, and weather constraints will place unprecedented pressure on mankind’s ability to access our most basic goods – food, fuel and fiber. The financial sector will face a new set of material and reputational risks, as well as opportunities, as the economy and society adjust.

To navigate these challenges head on, WWF works with a range of financial institutions in the debt and equity markets, asset management, and insurance. We leverage the insights from our more than 50 commodity experts, 100 country offices, as well as our partnerships with dozens of multi-national food, agri, and consumer goods companies, in order to deliver:

Did you know?

As growing populations put greater strain on raw materials and natural resources, financial institutions are taking notice. WWF understands that working closely with the finance industry is a critical way to influence agribusiness all over the world. Together, we can advance sustainable production of food, fiber, and fuel that impact the ecologically important regions that WWF seeks to protect.

Why It Matters

Sustainability is a Business Issue

Consumers are increasingly seeking to purchase goods and services from companies that operate sustainably and transparently. However, this position has not always translated into action when it comes to the financial services industry. By attaching sustainability criteria to their lending and investment conditions, financial institutions are now helping to raise the standards in critical markets. These standards have a real and positive impact on the lives of people in developing countries – from creating safer working conditions, to cleaner water, to more effective community engagement. The standards that WWF has helped to develop demonstrate that companies now recognize sustainability as a business issue – one that can positively transform entire sectors operations, protect habitats and prevent biodiversity loss.

Financial Performance and the Environment

There’s also a strong correlation between financial performance and performance on environmental and social issues. The International Finance Corporation has found there’s an 11% higher return from companies that demonstrate high environmental and social standards. Sustainable finance can also be a cross-selling tool to serve clients with a more sophisticated product package, supporting both client retention and new client acquisition.

Impacts

Credit Risk

Businesses that do not comply with a standard of sustainable financing face higher credit risk. In deciding what projects to finance, institutions have the ability to lend securities in a sustainable fashion by conducting external environmental assessments and identifying potentially significant environmental impacts. For example, a bank may provide a loan to a customer without conducting environmental due diligence to later realize the customer’s facility, the underlying security to the loan, has been shut down due to contaminated water from inappropriate health and safety standards. The bank is now exposed to higher credit risk as the contaminated facilities’ market value is lessened by this environmental violation.

Macro Risk

Unanticipated macro risk from underlying resource scarcity, local market volatility or destructive climate change among others is an inherent risk to international financing. If a project is not resilient to potentially disruptive macro risks, those risks can negatively influence the volatility over time of investments, assets, portfolios, and the intrinsic value of a company.

Reputational Risk

Damaging sustainability claims may raise the potential exposure to regulatory sanctions, litigation, and government investigations. Even if a project sponsor has a solid market reputation, without mandating sustainable project standards the risk of engaging in environmentally damaging practices is high. For example, investing in a waste management company that is not in compliance with local waste disposal laws could present reputational risk.

“Greenwashing” Risk

Developing sustainable finance practices can often call in to question authenticity by the public and the media. Many consumers may feel green and ethical investing claims within financial services are nothing but spin. Firms are also at fault for making one-off improvements to win positive publicity, and later returning to business as usual.

What WWF Is Doing

Developing Standards

WWF works with multilateral development banks such as The International Finance Corporation (IFC), World Bank, Asian Development Bank (ADB), and Inter-American Development Bank to help shape the standards and regulatory framework for commercial finance in developing countries. We work strategically with these institutions, and their bilateral peers, to help create greater awareness over the ways in which biodiversity and ecosystem services can be integrated into the work of the multilateral and bilateral communities. We have worked with the IFC on agricultural commodities, advised the ADB and World Bank on environmental policies, and help to build capacity in financial institutions around key areas to create better outcomes over critical environmental issues.

Encouraging Responsible Lending

With guidance from WWF, the Dutch bank Rabobank – the largest agricultural financer in the world – has attached similar sustainability conditions to its investments. The Roundtable on Sustainable Palm Oil (RSPO) is just one example. Examining the dividends of palm oil certification, WWF helped to identify the economic benefits of pursuing sustainable palm oil operations through a comprehensive report. The report's research shows that adopting sustainable practices, even in a high impact industry like palm oil, can result in net financial benefits to producers—providing gains for people, the planet and the bottom line.

Research and Guidance

WWF seeks to provide timely guidance and trend analysis through its quarterly International Finance Newsletter and topical reports. The International Finance Quarterly newsletter series aims to provide regular information on key sustainability developments in the production and trade of food and fiber commodities. It offers practical and timely guidance on ways to incorporate sustainability in investment decisions and review progress in the development and traction of key sustainability standards. WWF also publishes sector-based guidance. WWF recently worked with CDC, the UK’s development finance institution, and FMO, the Dutch development bank, to author Profitability and Sustainability in Palm Oil Production, the first report of its kind to examine the financial costs and benefits of adopting sustainable practices and pursuing certification.

A rapidly growing global population, accelerating consumption, dietary shifts, climate change and other factors are driving unprecedented price volatility, resource shortages, and other risks in soft commodity supply chains. These challenges pose material, reputational and systemic risk to investors. WWF seeks to help investors untangle this complexity. Through The 2050 Criteria: Guide to Responsible Investment in Agriculture, Forest, and Seafood Commodities, WWF provides investors with a field guide for identifying good performers in agricultural, forest, and seafood sectors.